It has been over a week since HyreCar (HYRE:NASDAQ) filed its tiny IPO. MarketWatch reported then that the company raised just $12.5 million by selling 2.5 million shares at $5. The stock has not been impressive since then, hovering around the $5 mark and sitting at $4.97 as of Tuesday morning.
HyreCar’s low value may intrigue some investors, but the company suffers from a lot of major problems, such as high losses and an extremely short operating history. Investors should remember that less successful or storied companies will look to take advantage of the currently successful IPO market, and HyreCar’s IPO appears to be a prime example of this. There are few reasons to consider this stock moving forward.
Latching on to Ridesharing
In HyreCar’s S-1/A filing, the company describes itself as “a unique peer-to-peer car-sharing marketplace” which lets car owners rent their vehicles to drivers who want to work with Uber (NYSE:UBER) and Lyft. HyreCar takes a fee from drivers and owners, does background checks, insures both of them, and lets drivers rent vehicles for periods as short as one day.
HyreCar argues that it has grown a great deal by finding a unique niche, with revenues increasing from $515,437 in 2016 to $3.2 million in 2017 and $1.7 million in the 2018 1Q. And it is true that there are no other companies that connect car owners and ridesharing workers like HyreCar does, even in this post-cookies and GDPR climate.
But there are some problems with these arguments. First, the company has an extremely limited operating history, as it was founded in 2014, which means that investors are operating with an extremely small number of data points. The second point is that while HyreCar may not face any direct competition, it could be easily destroyed by either Uber or Lyft, especially as the company admits that, “We do not have written contracts with either Uber or Lyft.”
In fact, it should be noted that Lyft does offer a similar service called Lyft Express Drive which lets Lyft drivers rent cars from companies like Hertz at a discount to drive for them. There are enough differences between Express Drive and HyreCar, such as the fact that drivers cannot use Lyft Express Drive cars to drive for Uber, for HyreCar to have its own unique niche. But Express Drive is an example of how the larger ridesharing companies could easily squeeze HyreCar out if they were inclined. And all of this does also assume that ridesharing will continue to grow despite the constant attacks from governments and activists.
Given HyreCar’s limited operating history, investors might ask why it is going public so soon. Why not raise money through angel investors and venture capital like Uber continues to do?
A possible answer is that the company’s previous funding rounds have not been impressive. Crunchbase reports that HyreCar has raised a total of $5 million in four funding rounds since 2016. The most recent funding round was announced this past February, which saw the company raise $1.5 million primarily through debt financing. Launching an IPO so soon after a funding round should be concerning, as is the fact that said funding round was smaller than HyreCar’s previous private equity round of $2 million in June 2017.
Investors may be turned off by the fact that while the company’s revenue is growing rapidly, the rest of its financial numbers are concerning. Most tech IPOs have net losses, and HyreCar is making a gross profit. But its net losses of $1.77 million in 2018 1Q and $4.2 million in 2017 are higher than its revenue. Furthermore, HyreCar reports $1.26 million in current assets against $4.06 million in current liabilities.
Raising $12.5 million will improve HyreCar’s financial situation, and the company plans to use the IPO proceeds to improve its marketing capabilities in particular. But given its limited operating history, investors need to see results before they commit to HyreCar.
HyreCar is growing, and there is a market for connecting potential drivers who want to work for ridesharing companies without buying a new car and owners who want to make some money without driving themselves. It is at a low price, and so investors could make a small investment because there is little to lose, and even a gain of a few dollars could represent a significant payout.
But given the lack of interest from private investors, its high losses, and its limited operating history, investors should have little interest in pursuing this company even at its current price. HyreCar should serve as a reminder that in this booming IPO market, we will see companies with weaker backgrounds and histories go public. Investors should be cautious in this environment.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.